Investment Fraud Litigation

A shareholder may have a cause of action against a corporation or its officers in the event of investment fraud. A shareholder fraud claim may exist if the plaintiff claims that the fraudulent activities or statements of the corporation or its officers have caused them financial damage.  To validly plead an investment fraud claim in New York state, the plaintiff generally must show the following five elements.

The Defendant Has Provided Misrepresented Material Information or Omitted Materials Information

In this first element, the plaintiff must show that the defendant has made a statement that is material in nature or failed to disclose material information to the plaintiff.

Any information or statement is considered material if it has a substantial likelihood that a reasonable investor would consider it important in making their investment decisions.

The Defendant Has Knowingly Falsified Material Information by Omitting Factor or Providing Material Misrepresentation

Secondly, the plaintiff must show that the defendant has knowingly provided the material information or statement as false. Under this element, the defendant must know the error in the material statement they had provided to the plaintiff or that they are aware that the information they are refraining from the shareholders is material in nature.

Defendant Intended to Defraud the Shareholders

In addition to the defendant knowingly stating or omitting such material information, the defendant must also intend to defraud by committing such acts.

Under this element, the plaintiff must show that the defendant has an active intention that their misrepresentation or refraining to disclose material information. It is not enough for the plaintiff to show that the defendant has provided or omitted material information. Instead, the plaintiff must show that the defendant committed their wrongful act intending to defraud the shareholders.

Plaintiff Reasonably Relied on the Defendant

The plaintiff must also show that they had reasonably relied on the defendant’s actions, specifically their misrepresentation of material information, or lack thereof.

The plaintiff must show that a reasonable shareholder would have naturally relied on the defendant’s statement or omission for this claim to apply. This means that the plaintiff has justifiably relied on the defendant’s actions, just like any reasonable shareholder in their position. The shareholder must show that, but they would not have entered or refrained from entering the transaction for the defendant’s wrongful acts.

Plaintiff Suffered Damage From the Defendant’s Misrepresentation or Omission of Fact

Notably, the plaintiff must show that the defendant’s actions have caused them to suffer damages. For this element to apply, the plaintiff must show the correlation between the defendant’s actions, whether an omission or a misrepresentation of material information has caused the plaintiff to refrain or enter a transaction solely due to the defendant’s wrongful actions.

Moreover, the plaintiff must allege enough facts that their damage has a monetary value inferred from their suffering. This means that the plaintiff must show that the harm they suffered can be allocated a monetary amount.

In New York, the courts require that the shareholder plaintiff plead each of the elements listed above in detail. The shareholder plaintiff must provide enough facts to support a reasonable inference that fraud has been committed.

In addition, fraud claims in New York are subject to a statute of limitations. Specifically, a fraud claim must be asserted either:

  • Within six years from the date of the fraud; or
  • Within two years from the date, the shareholder plaintiff discovered the fraud or reasonably could have been discovered through due diligence.

Nonetheless, certain circumstances may sway the court to extend these limitations.

Pleading a shareholder fraud claim in New York state is fact-intensive, time-consuming, complicated, and time-sensitive. In these circumstances, seeking the representation of an experienced securities attorney can help you successfully plead your fraud claim on time.